With 2021 Q3 earnings essentially over, we begin to look at aggregate performance and EPS estimates of the 11 S&P 500 sectors during the past earnings season and also look ahead to what’s expected next quarter and next year.

Exhibit 1 below, reproduced from our daily/weekly S&P 500 Earnings Scorecard (available here), shows still-impressive results for Q3 for the S&P 500 with the 42.6% year-over-year growth rate third best in the last 10 years, coming in behind the prior two quarters of 2021. Since the start of earnings season (Oct. 1), the year-over-year growth rate has improved 13.2 percentage points.

Exhibit 1: S&P 500 Earnings Scorecard Dashboard as of Dec. 3, 2021

Source: I/B/E/S data from Refinitiv

Putting 2021 Q3 results in a longer context in Exhibit 2 below shows how year-over-year growth rates have likely peaked as pandemic-impacted comparisons have less and less impact.

Exhibit 2: S&P 500 Historical and Estimated Year-Over-Year Growth Rates

In Exhibit 3 below, we use the Preferred Earnings Analysis template in the EARN app in Eikon to show the aggregate performance of the S&P 500 sectors during the 2021 Q3 earnings season. Below, we can see that, on average, stocks that beat were rewarded, rising +1%, while those that missed were punished downward 1.9% (Price Reaction -2d columns – red box below).

Exhibit 3: 2021 Q3 Earnings Performance via EARN App

Source: Eikon

Looking ahead, we can see that 2021 Q4 earnings have remained relatively stable this quarter despite the solid performance. Since the beginning of earnings season, 2021 Q4 earnings growth estimates are flat at 21.6%.

Exhibit 4: 2021 Q4 Estimated Earnings Growth

Source:I/B/E/S data from Refinitiv

Looking at full year estimates (Exhibit 5), expected results for 2022 remained consistent, growing only 1.1% since the start of earnings compared to a 2.4% increase in 2021 estimates, and a 1.7% increase for 2023 EPS estimates.

Exhibit 5: Full Year Bottom Up EPS Estimates

Source:I/B/E/S data from Refinitiv

On Oct. 7, we published our 2021 Q3 earnings outlook piece, and noted the expected top 20 contributors to 2021 Q2 earnings. Exhibit 6 below is reproduced from that report and shows the expected percentage point (PPT) contribution to earnings growth in 2021 Q3, prior to the start of earnings season.

Exhibit 6: Expected Earnings Growth Contribution in 2021 Q3 as of Oct. 7

In Exhibit 7 below we show the actual contribution to 2021 Q3 earnings from the top 20 companies as of the end of earnings season.

Exhibit 7: Actual Earnings Growth Contribution in 2021 Q3

Source:I/B/E/S data from Refinitiv

The top 20 contributors in 2021 Q3 accounted for 19.3 PPTs of total growth compared to the estimate of 16.1 PPTs at the start of earnings. This compares to last quarter when the top 20 accounted for 42.3 PPT of overall growth compared to a pre-earnings season estimate of 29.6 PPT.

With inflation top of mind for investors as the most recent year-over-year increase in CPI of 6.2% is the largest since the early 1990's, we decided to take a look at how prevalent discussions of inflation were on S&P 500 company earnings calls this quarter. Using the Advanced Events Search App on Eikon, we can search for keywords in company earnings calls.

Exhibit 8: Advanced Event Search App results for Keyword “Inflation” in Q3 Earnings Calls

Source: Eikon

By customizing the search dates, we can look at results for the same search in prior quarters and then export the data to Excel to further analyze the results. In Exhibit 9 below, we look at the percent of S&P 500 companies that mentioned inflation on an earnings call over the past five quarters.

Looking over time, we can see the sharp increase in the number of companies that mentioned inflation, with 296 or 59.2% in 2021 compared to only 22% (110) in 2020 Q3.

Exhibit 9: S&P 500 Companies Mentioning Inflation on Earnings Call by Quarter

Source: Eikon

Breaking the results down further by sector, we see that Materials (86%), Consumer Staples (84%), and Energy (81%) had the highest percentage of companies that mentioned inflation, while Information Technology (32%), Utilities (25%), and Communication Services (22%) had the lowest. See Exhibit 10.

Exhibit 10: S&P 500 Companies Mentioning Inflation by Sector

Source:Eikon

We will be looking at the historical relationship between inflation and sector performance in a future piece.